Atlantic Richfield (ARCO) and Mobil Exploration &amp ProducingU.S. last week announced they closed an exchange transaction thatwill allow ARCO subsidiary Vastar Resources to boost its gasproduction and reserve activity level in the Gulf of Mexico shelfby one third, and Mobil’s exploration and production arm tosignificantly increase its stake in California oil production. Thedeal closed on Oct. 31st.

Under the arrangement, Mobil E&ampP transferred to ARCO itsinterests in 23 producing fields in the western Gulf, which areexpected to produce 180 MMcf/d of gas equivalent in 1999 and seeproved reserves of 360 Bcf of gas equivalent. In return, MobilE&ampP got from ARCO five fields in Kern and Los Angeles countieswith a net production of about 37,000 barrels per day (BPD) of oiland 6 MMcf/d of gas. Mobil also received an interest in acogeneration facility in Kern County.

ARCO sold the Gulf of Mexico properties to its Vastar productionsubsidiary for $470 million, while Mobil E&ampP turned over itsownership in the newly acquired California properties to AeraEnergy LLC, a California-based production joint venture between itand Shell Oil. The transfer of the properties increased MobilE&ampP’s equity interest in the 290,000 BPD venture to 48.2% from41.4%.

The deal gives Vastar, of which ARCO owns 82%, working interestsin 93 platforms and 295 active wells, as well as interests in morethan 80 lease blocks in the shallow waters (40-900 feet depth) ofthe central and western Gulf. In addition, the producer acquiredsmall support pipelines, gathering lines and a shorebase inCameron, La. The transaction resulted in an after-tax charge of$109 million that was reflected in ARCO’s third-quarter earnings.

James Bartlett, a spokesman for Vastar, estimated that theacquisition would increase overall gas reserves for the company,which were put at 3.15 Tcf at the end of 1997, by 11%. Totalcompany-wide production for Vastar as of the third quarter was 1.2Bcf/d of gas equivalent. The deal is expected to further cementVastar’s position as one of the leading producers in the Gulfshelf, he said.

For Mobil, giving up its interests in the western Gulf was asmall price to pay for receiving “long-life reserves,” about 20-40years worth of oil, in California, said J. Michael Yeager,president and general manager of Mobil E&ampP. “If you thinkforward of what might occur or could occur in the U.S., we think itmakes…sense to have large positions in these very long-lifeplaces in the U.S., as there are not very many of them left.”

As for the Gulf, he noted that Mobil E&ampP only gave up itsinterests in one piece – the western shelf. Unlike Vastar, whichhas been focusing on the western Gulf, “it’s just not strategicallyat the top of our list,” Yeager told NGI. “We are still active inthe eastern part of the shelf of the Gulf of Mexico, which is kindof at the mouth of the Mississippi River. And we’re very, verystrong in the Mobile Bay area.”

Under the deal, Mobil gave up the rights to about 40,000 of80,000 BPD of production – which leaves it with about half of itscurrent total oil and gas production in the Gulf shelf. Inaddition, Mobil has another 35,000 BPD of production at Mobile Bay.”So we still have a large presence there in the offshore Gulf ofMexico theater,” he noted.

The asset exchange is expected to result in a net reduction ofabout 230 positions to Mobil’s Gulf of Mexico work force, with mosteligible for a separate benefits package, according to the company.At the same time, ARCO’s Bakersfield, CA, office will be closed, amove which would affect about 270 professional and hourlyemployees. Susan Parker

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